While the success of a merger or acquisition may be best
determined over a long time horizon of several years, investors
tend to have a shorter-term view of what constitutes success or
failure in M&A. Corporations are held to be only as successful
as their latest quarterly results and many investors base their
opinions off analysts' reports and forecasts. Given the weight
accorded to these reports by investors, corporations often focus on
quarterly results in lieu of longer-term performance. One
result is that the longer-term planning required to extract the
most value from an M&A transaction may be abandoned in
favour of the short-term decisions required to beat
analysts' next quarterly forecast.
In response to this approach, corporate governance experts in Canada have
advocated for a move to lengthier financial reporting periods. By
giving directors more time in between reports, corporate decision
makers would be able to take a longer view of operations and become
less beholden to "quarterly capitalism" under the current
While no securities regulator in Canada has yet
to make this change, the Financial Conduct Authority in the UK has
begun to allow reporting corporations to forgo issuing first and
third quarter reports. To date, only four of the FTSE 100 constituents have adopted
this reporting structure. According to the Financial Times, one these
corporations, National Grid, will also issue updates as necessary
outside of the biannual reports. Unilever also made headlines in
2009 when it decided to stop providing quarterly guidance to
investors, citing the need to reduce "short-termism".
These goals have also been echoed by Dominic
Barton, McKinsey's global managing director, and Mark Wiseman,
president and CEO of Canada Pension Plan Investment Board. In the
article "Focusing capital on the long term", the
author's state that the majority of board members and
executives feel pressure to demonstrate short-term financial
performance while also believing that using a longer decision
making horizon would improve corporate performance.
While Canadian publicly traded corporations may
still find it difficult to avoid the pressures of quarterly
reporting, private companies should take note of the reasoning
behind such moves. Since they are not subject to quarterly reports,
private corporations can more easily take advantage of long-term
strategic planning. This is especially valuable in the context of
mergers and acquisitions where the benefits may not be fully
realized until well after a transactions has closed.
The author would like to thank Mark
Bissegger, summer student, for his assistance in preparing this
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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